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Note 5 - Loans to Customers
 12 Months Ended
Dec. 31, 2019
Statement Line Items [Line Items]  
Microloans [text block]
NOTE
5.
LOANS TO CUSTOMERS
 
The Group engages in microlending in several developing countries, including Kenya and India. In
2019,
the Group provided loans to customers with a relatively short duration, up to
365
days, in exchange for an origination fee that remained fixed regardless of any early repayment. The average duration for microloans provided in
2019
was
15
days. Additional fees in the form of interest, limited to the sum of the principal and origination fee, is accrued only if and after a loan was
not
repaid by its due date.
 
The fair value of microloans is presented in the Statement of Financial Position as Loans to customers. In the Statement of Operations, changes in fair value are disaggregated into Revenue and Other changes in fair value of loans to customers. While fair value of loans to customers is estimated as the present value of expected cash flows discounted by the credit-adjusted effective interest rate, the amount of revenue recognized related to origination fees and interest is measured based on the effective interest rate method. The amount of Other changes in fair value of loans to customers, presented as credit loss expense in the segment reporting in Note
4,
is the difference between the fair value at inception or the beginning of the period and the fair value at the end of the period, less cash flows received in the period and interest revenue. Other changes in fair value of loans to customers consist primarily of changes in fair value of expected cash flows.
 
See Note
18
 for information on the Group’s exposure to credit risk and its policies for managing that risk.
 
The following tables present detailed financial information related to the microloans to customers:
 
 
  
Loans to customers
   
Loans to customers
   
Loans to customers
   
Loans to customers
   
 
 
 
[US$ thousands]
Statement of Financial Position as of December 31, 2018
  
not yet
overdue
    
overdue
1-30 days
    
overdue
31-90 days
    
overdue
>90 days
    
Total
 
Disbursed amounts    
1,520
      
503
      
235
      
310
      
2,568
  
Accumulated interest revenue    
247
      
223
      
276
      
400
      
1,146
  
Accumulated credit loss expense
(1)
    
-
      
(91
 )    
(99
 )    
(337
 )    
(528
 )
Accumulated partial repayments    
(6
 )    
(37
 )    
(34
 )    
(18
 )    
(95
 )
Net loans to customers
  
 
1,762
    
 
598
    
 
378
    
 
355
    
 
3,092
  
 
 
  
Loans to customers
   
Loans to customers
   
Loans to customers
   
Loans to customers
    
 
 
 
[US$ thousands]
Statement of Financial Position as of December 31, 2019
  
not yet
overdue
    
overdue
1-30 days
    
overdue
31-90 days
    
overdue
>90 days
    
Total
  
Disbursed amounts    
88,271
      
10,350
      
13,462
      
20,335
      
132,418
  
Accumulated interest revenue    
5,101
      
2,017
      
3,390
      
6,830
      
17,338
  
Accumulated credit loss expense
(1)
    
(4,754
 )    
(8,629
 )    
(15,950
 )    
(24,969
 )    
(54,302
 )
Accumulated partial repayments    
(30
 )    
(137
 )    
(300
 )    
(1,375
 )    
(1,843
 )
Net loans to customers
  
 
88,588
    
 
3,601
    
 
602
    
 
325
    
 
93,115
  
 
(
1
)
Accumulated credit loss expense is part of Other changes in fair value of loans to customers in the Statement of Operations. 
 
[US$ thousands]
  
Year ended December 31,
  
Statement of Operations
  
2017
    
2018
    
2019
  
Origination fees and late interest
    
-
      
1,655
      
128,373
  
Other changes in fair value of loans to customers    
-
      
(528
 )    
(54,431
 )
Net change in fair value of loans to customers
    
-
    
 
1,127
    
 
74,071
  
 
[US$ thousands]
  
Year-ended December 31,
  
Reconciliation of fair value measurement of loans to customers
  
2018
    
2019
  
As of January 1
  
 
-
    
 
3,092
 
Disbursements
    
9,728
      
856,883
  
Interest revenue
    
1,655
      
128,373
  
Other changes in fair value
    
(528
 )    
(54,302
 )
Repayments
    
(8,840
 )    
(840,003
 )
Other movements
    
1,077
      
(928
 )
As of December 31
  
 
3,092
   
 
93,115
 
 
Fair value measurement
 
The fair value of microloans is estimated as the present value of expected cash flows discounted by the credit-adjusted effective interest rate. The fair value is a level
3
measurement. Future expected cash flows are estimated based on historic data and management overlay when necessary to reflect current expectations.
 
In the Group’s fair value model, each individual loan is designated into groups of loans where each group of loans has a corresponding recovery curve. The recovery curve reflects the expected cash flows for that group of loans and is constructed based on the observed historic data for loans with similar characteristics (e.g., to a
first
-time borrower or a returning borrower, disbursed amounts, loan term (maturity) and actual repayments). As the loan progresses and the Group obtains payment data (behavior data) on the customer, the contract remains in its current loan group or switch to the loan group whose recovery curve is most aligned with the observed payment history for that specific contract. Based on accumulated data, Opera has
no
reasonable expectation of receiving cash flows subsequent to
180
days after maturity, and consequently do
not
include any expected cash flow after
180
days past due in the estimation of fair value.
 
A basic premise applied for the initial and subsequent measurement of fair value is that each loan is issued without the creation of a gain or loss on issue. Thus, at initial recognition, the fair value of the loan, being the net present value of expected future cash flows, equals the cash flows disbursed when issuing the loan. Due to the short duration of the loan, the credit adjusted effective interest rate, that resulted in
no
gain or loss at inception, is kept constant when measuring the fair value of the loan for the remaining of the duration of the loan.
 
Due to the short duration of the microloans, the most significant factor when evaluating the loans is the estimation of future expected cash flows (the recovery curve). The estimate of fair value is also sensitive to the discount rate.
 
A
10%
increase in the expected future cash flows would result in the fair value of the loans to customers being
US$101,641
thousand, while a
10%
decrease would result in the fair value being
US$84,589
thousand. If the annualized discount rate was
100
percentage points higher, the fair value would be
US$92,933
thousand, and if the annualized discount rate was
100
percentage points lower, the fair value would be
US$93,348
thousand. 
 
See Note
16
for additional details.